The Reserve Bank of Australia governor Glenn Stevens has increased speculation that rates may be raised sooner rather than later.
Speaking at a Senate Inquiry yesterday, Mr Stevens cautioned that keeping rates too low for too long could produce a housing bubble.
Mr Stevens said he endorsed the government’s fiscal stimulus but warned that they must stick to the strategy of winding back the spending.
“I haven’t really had a serious problem with what’s occurred on the fiscal front thus far,” he said.
“It’s important these measures should be wound back over time, but they’re on track to do so.
“The more important issue will be for the joint support being given by both fiscal and monetary policy to be withdrawn in a timely fashion as the recovery proceeds – not too soon because we don’t want to abort the recover, but not too late as we don’t want to overheat it.”
According to the Australian Financial Review, money markets raised the chances of a rate rise at the 6 October board meeting to 23 per cent, up from 15 per cent.